Cost accounting

Definition

Cost accounting involves the recording, classification, analysis, and allocation of costs associated with a process or product. It helps businesses determine the cost of production and set pricing strategies.

5 Must Know Facts For Your Next Test

1. Cost accounting is crucial for budgeting and financial planning within an organization.
2. It differs from financial accounting as it focuses on internal cost control rather than external financial reporting.
3. Common techniques used in cost accounting include job costing, process costing, and activity-based costing.
4. Cost accountants often work closely with management to provide data for decision-making and performance evaluation.
5. Understanding cost behavior and cost-volume-profit analysis are fundamental aspects of cost accounting.

Review Questions

• What is the primary purpose of cost accounting?
• How does cost accounting differ from financial accounting?
• Name two techniques commonly used in cost accounting.

Related terms

Job Costing: A method that assigns costs to specific production jobs or batches.

Process Costing: A costing method where costs are assigned to each process or stage of production.

Activity-Based Costing: A methodology that assigns overhead and indirect costs to related products and services based on their activities.